EB SECURITIES: The theme of "anti-internal competition" is expected to help reevaluate the value of copper smelting assets.

Event: (1) On July 1, 2025, the Central Finance and Economic Committee clarified in its sixth meeting the need to govern the low-priced and disorderly competition in enterprises in accordance with the law, and to promote the orderly exit of outdated production capacity; (2) On July 18, the Ministry of Industry and Information Technology announced at a press conference that the ten key industries including steel, non-ferrous metals, petrochemicals, and building materials will soon have stabilization and growth plans in place. The next step will continue to implement high-quality development plans for the copper, aluminum, and gold industries, implement a new round of stabilization and growth plans for the non-ferrous metals industry, and promote the industry to achieve qualitative and effective growth. Output: In 2024, China's electrolytic copper production accounted for 59% of global production, with a domestic capacity market share of approximately 76%. In 2024, China's electrolytic copper production was 13.64 million tons, accounting for 59% of global primary electrolytic copper production; In 2004, China's electrolytic copper production was only 2.035 million tons (15% of global production), with a compound annual growth rate of 10% during this period. The growth of China's electrolytic copper production is attributed to: 1) the rapid growth of copper demand in China; 2) China's significant export of downstream copper products such as cables and appliances; 3) China's leading global copper smelting technology, with high productivity and labor-intensive characteristics. According to Baichuan Yingfu sample capacity data, state-owned enterprises dominate the smelting industry, with a CR10 market share of approximately 76%. In 2024, Jiangxi Copper produced 2.29 million tons of copper, Tongling Nonferrous Metals Group 1.77 million tons, Jinzhou Group 1.33 million tons, Yunnan Copper 1.206 million tons, Zijin Mining Group 0.75 million tons, accounting for 17%, 13%, 10%, 9%, and 5% of domestic production respectively. Capacity Expansion: In June 2025, the smelting capacity utilization rate was approximately 86%, with 2.98 million tons of capacity still awaiting production (estimated annual capacity of 15.88 million tons in June 2025). In June 2025, China's electrolytic copper production was 1.135 million tons, with a smelting capacity utilization rate of 86%; based on the June production and utilization rate, China's annualized electrolytic copper production capacity in June was estimated to be 15.88 million tons. SMM estimates that there is still 2.975 million tons of annual copper refining capacity awaiting production, with approximately 0.925 million and 0.75 million tons expected to commence production in 2025 and 2026 respectively. The timing of the remaining capacity of approximately 1.3 million tons per year is still unclear. Profit: Processing fees have dropped to 0, relying on profits from by-products such as sulfuric acid TC/RC refers to the fees paid by mineral enterprises to smelting enterprises for turning copper ores into crude/pure copper. The combination of tight copper concentrate supply and rapid expansion of China's smelting capacity has led to continuous declines in TC since 2024. (1) Spot prices: As of July 18, 2025, the spot TC price was -43.2 US dollars per ton, at a historical low. (2) Long-term contracts: Smelting enterprises are currently executing long-term contracts at a benchmark price of 21.25 US dollars per ton signed at the end of 2024; however, the processing fee for mid-year long-term contracts in June 2025 has dropped to 0 US dollars per ton. This means that smelting enterprises have no processing fee income and can only rely on profits from by-products such as sulfuric acid, minor metals, and excess recovery rates. If the price of sulfuric acid were to decline in the future, smelting enterprises may face losses. If the copper smelting industry implements anti-subcontracting policies or restricts new copper smelting capacity while accelerating the exit of small smelting capacities, downstream copper consumption will still benefit from continued growth in new energy and grid upgrades. Excess smelting capacity may be alleviated in the future, leading to improved profitability for smelting enterprises. Risk warning: Unexpected delays in policy implementation, slow exit of outdated capacity; risks of lower-than-expected demand. This article is excerpted from the "EB SECURITIES Research" WeChat public account; GMTEight Editor: Zhao Jinbin.